Comment: Regulatory procedures,investment opportunities,and stock valuation

Several recent studies of the effect of accounting treatment on the valuation of electric utilities have concluded that investors appear to favor normalizing firms by pricing equities of such firms relatively higher than the equities of flow-through firms. The observed higher price/earnings ratios (P/E ratios) for normalizing firms have usually been credited to the benefits of normalization, as perceived by investors. This article presents evidence that the observed preference for normalization companies is unrelated to accounting treatment. Rather, this preference is related to the fact that firms that obtain normalization benefits typically have lower costs than those which do not have such benefits. This characteristic of normalization firms results in their relatively higher P/E ratios.     

Franchising at the Bottom of the Pyramid (BOP): an alternative distribution approach

Bottom of the Pyramid (BOP) markets provide distinct marketing challenges to firms either serving these markets or intending to enter these markets. BOP markets have often been criticised for having weak supporting infrastructure such as inefficient or non-existence of distribution systems which hinder firms' ability to distribute products to consumers. Franchising is one distribution strategy which firms can use to enhance distribution at the BOP. Using findings from research conducted in Zimbabwe, this article demonstrates how firms can use franchising as a distribution strategy to facilitate distribution of products to those at the BOP. Both consumers and firms derive benefits from the use of franchising. Firms face distinct challenges in using this strategy and need to re-invent the way they do business.     

The hidden hand and the license raj to An evaluation of the relationship between age and the growth of firms in India

The study that this article reports on considers the consequences of nationally variable macroinstitutional environments, and the implications of major alterations in such environments, on organizational level behavior and performance. Specifically, it examines the relationship between firm age and growth for a large sample of Indian firms using contemporary data. Firms are classified as falling into three specific categories: those incorporated, or born, prior to 1956; those incorporated between 1956 and 1980; and those incorporated after 1980.Each of these selected periods defines and denotes specific policy regimes affecting Indian industry. These policy regimes have been dictated by the national macroinstitutional environmental considerations that were in existence for the Indian economy. No significant relationship is established between the age variable and growth for firms incorporated prior to 1956, while a negative relationship is established between the age variable and growth for firms incorporated between 1956 and 1980. These were the years when the command and control industrial policy regime, popularly known as the “license raj,” was in operation in India. Conversely, for firms incorporated after 1980 when market forces began to be encouraged, and the “hidden hand” started becoming visible to some degree in the Indian context, the age and growth relationship is established to be positive.The evidence suggests that entrepreneurial behavior is an extremely important feature of contemporary Indian industry. Recent anecdotes about Indian firms, particularly in the information technology sector, suggest that there has been a resurgence of industrial activity in the country. These beliefs are well borne out by the large-scale empirical analysis that this article reports on. The younger Indian firms, those which have not been imprinted by the taints of a command and control regime, are going to drive India's industrial progress forward. The “hidden hand” is alive and well in India.Conversely, older firms, which might seem to possess a stock of capabilities developed over time, are going to find that these are unlikely to be readily deployable in the future. Older firms might have had the attributes that led to corporate success in an environment where rent seeking was the norm. In the present milieu, such abilities are not conducive to corporate progress. In particular, the “license raj” firms have no capability to succeed, as shown by the negative age and growth relationship.Additionally, the relationship between size and the growth of Indian firms is found to be negative. This suggests that a process of industrial fragmentation may be taking place in Indian industry, with small firms growing faster than larger firms and reducing the importance of larger firms in Indian industry. This has important implications for the future competitiveness of Indian industry.     

Competitive Strategies of Tiawanese PC Firms in Their Internationalization Process

Small Taiwanese firms have been successful in developing market niches internationally for their products in the fast-growing and highly competitive global information industry. To identify the competitive strategies used by these firms, a study was udnertaken which classified various stages of their internationalization processes. Results indicate that these firms established their momentum in the global marketplace either by using a regional focus combined with innovation synergy or by emphasizing a combination of marketing techniques as their strategy components.     

Financial Analysis of Palestinian Industry Including Small Scale Firms

The study aims to explore the financial aspects of the Palestinian industry, and to investigate productivity and efficiency of small scale industry compared with large scale firms. In order to help policy makers in industrial planning in the new emerged Palestinian state. A special instrument has been used to collect the financial and quantitative data for the related manufacturing firms from a random sample of 215 Palestinian firms. The one way analysis of variance test was used to examine whether the mean scores differ significantly among scale sizes of the Palestinian industry concerning the selected performance measures. In addition, the Scheffe test was used as a post hoc comparison way to identify which scale size firms' performance differs than the other two scale sizes.The research revealed that small scale firms in Palestinian industry have higher labor productivity values than large scale firms, while large scale firms accomplished higher net profit margin compared to small scale industry. Creating an additional job in large scale Palestinian industry needs less cost than creating a job in small scale industry, and large scale firms have better opportunity in getting external financing than small firms.     

Small firms and the failure of national skills policies: adopting an institutional perspective

Both skills and small firms have been increasingly prominent in policy agendas across the world in recent years. Skills are now seen as being crucial to economic prosperity, yet evidence consistently shows much lower levels of training, on average, in small firms than in larger businesses. Policy makers in various countries have sought to address this perceived problem and to stimulate skills development in small firms, but have attempted to do so in different ways and with varying degrees of success. It is this divergence in national skills policies, as well as its causes and implications for skill formation in small firms, that this paper seeks to illuminate. In doing so, it adopts an ‘institutional’ perspective that advances current understanding of how and why skills policies adopted in different countries appear to have varying effects on small firms. Through employing this institutional analysis, the paper promotes an awareness of how historical, social and economic forces in the ‘corporatist’ systems, found for example in Germany and Scandinavia, tend to provide a more supportive context for skills development in small firms than the liberal free market systems found elsewhere in the world, such as in the USA, Canada and the UK – which is highlighted as an illustrative case in this paper.     

Strategic Use of Analytical CRM in a Market with Network Effects and Switching Costs: Terminating Unprofitable Customer Relationships

Analytical customer relationship management (CRM) systems make firms more informed than ever about their customers. This further gives firms the ability to serve customers selectively in a way that ensures retaining profitable customers and eliminating unprofitable ones. However, when firms of products/services with network effects decide to eliminate unprofitable customers, they may face the risk associated with firing them, which is user-based shrinkage. This risk incurred as a result of network effects has been widely neglected in CRM literature. In this study, considering this risk, we investigate when firms can eliminate unprofitable customers in the competitive market with network effects and consumer switching costs, which often co-exist with network effects, using a game-theoretic model of a duopoly. Our results show that it is not desirable for firms to fire unprofitable customers in the presence of strong network effects or sufficiently low consumer-switching costs. Otherwise, firms can fire unprofitable customers and benefit from the ability to eliminate them. An interesting point is that competing firms can be better off when both have the ability to eliminate unprofitable customers in the presence of moderate switching costs and small network effects.     

Trade Credit in Small and Medium Size Firms: An Application of the System Estimator With Panel Data

Financing through suppliers is a subject that has been little studied in the economic literature in general and in corporate finance in particular. Although several hypotheses have been put forward to explain the different reasons behind this phenomenon, trade credit is not based on a general theory. This study provides empirical evidence about factors determining the use of trade credit for a sample of small and medium size firms, which are potentially the firms that would follow this financing route, since they are more rationed in credit markets. Using a panel of Canary-Island firms from 1990 to 1996, and by means of specifications with the system estimator, results reveal that trade credit leads to a reduction in asymmetric information between firms and their financial backers, as well as in transaction costs. Furthermore, we confirm the theory that companies with easier access to institutional finance act as a credit channel for those with greater difficulties to obtain external funds.     

Competitive positioning and innovative efforts in SMEs

This paper reports on the results of a study conducted on 455 smaller manufacturing firms. Its aim was to investigate the relationship between competitive positioning and innovative efforts as measured by R&D expenditures, process innovation, and the use of patent data bases. Results indicate that a relationship does indeed exist and that firms which hold a stronger competitive position in terms of cost, quality, and diversity generally make greater efforts with regard to innovation. In fact, some differences have been found to exist in the intensity of the various innovative efforts between groups of firms having different realized competitive strategies. These findings support the assumption that a link exists between business strategy and innovative efforts, and that this link is strongest in those firms which have the best competitive positioning.     

Origin matters: Institutional imprinting and family firm innovation in China

During the early 1990s, a swathe of small state-owned enterprises (SOEs) was privatized as family businesses in China. This paper examines whether and how the origin (i.e., restructured vs. entrepreneurial) of family firms affects corporate innovation. Using the data of Chinese family firms from 2009 to 2018, we find that restructured family firms generate fewer patents generally than entrepreneurial family firms, but create more high-quality patents than their entrepreneurial counterparts. This effect is more pronounced for those family firms which had formerly been SOEs for a more extended period, without generational succession, and previously controlled by governments entirely. Further mechanism tests show that restructured family firms have a higher likelihood of hiring professional managers, are subject to less intervention from family members, and have fewer informal hierarchies, providing direct evidence for the institutional imprinting channel. Our findings suggest that the institutional imprint underlying the origin of family firms can be critical to their innovation decisions.     

Total quality management,institutional isomorphism and performance: the case of financial services

This article concentrates on the relationship between the number of years that the firms have been implementing total quality management and the impact its practice can have on performance. The literature provides studies revealing that the last firms to introduce total quality management fail partly due to the fact that they imitate the implementation strategy used. Based on a sample of 77 Spanish financial companies, this paper provides evidence of the concept of institutionalisation as a process by which different management practices are generalised. The conclusion reached is that the process differs depending on the moment in which the total quality management system is introduced.     

Business Group Affiliation and Corporate Sustainability Strategies of Firms: An Investigation of Firms in India

In spite of an overwhelming importance of business groups (BG) in the economic development of many countries, systematic inquiry on how the BGs and their affiliated firms approach and contribute to shared value creation and sustainable development is rare. In this paper we address this research gap by investigating two related questions—do BG-affiliated firms differ from non-BG firms in their corporate sustainability strategy (CSS) and how does BG affiliation influence the relationship between stock of fungible resources and CSS of firms? Drawing from the BG literature we theorize that BG-affiliated firms tend to adopt of both environmental and social sustainability strategies more than non-BG firms. We also argue that although according to resource-based view, the stock of fungible resources of firms positively influences CSS, BG affiliation negatively moderates the relationship between stock of fungible resources and CSS of firms. Stock of fungible resources matters less for BG-affiliated firms in undertaking CSS as they have access to resources of the BG network. We test our theoretical predictions using a proprietary data set of 163 Indian publicly listed firms, out of which 76 are BG-affiliated firms belonging to 74 BGs. The data for corporate environmental and social sustainability strategies have been obtained by administering a survey instrument among the top level executives of the participating firms. We find support for our theoretical predictions that signify that BGs and their affiliates make important contributions to shared value creation and sustainable development in emerging economies like India.     

Determinants of corporate listings on stock markets in Sub-Saharan Africa: Evidence from Ghana

Sub-Saharan Africa (SSA) economies have established stock markets to encourage the mobilization of domestic funds and attract foreign capital in-flows for corporate investment and growth. But domestic corporate listings on stock markets have been abysmal. This study examines the reasons behind the low patronage of stock markets by domestic firms in SSA using Ghana as a case study. Data for the study was obtained from 110 out of the 200 largest firms in Ghana and included firms which were listed on the stock market and unlisted firms over three time-periods from 2002 to 2009. The findings show that knowledge about stock market dynamics and financial institutions' support encourages listing on the stock market. However, extensive information and disclosure costs requirements, and loss of ownership and control discourage listing on the stock market.     

An experience curve explanation of export expansion

Various explanatory variables have been identified in past research as determinants of the export behavior of firms. This article proposes that while many factors contribute to export behavior, experience curve effects are a major variable explaining the international activities of firms. The research reported here finds that younger firms are much more faborably disposed toward and active in international marketing than older firms. This is attributed to the competitive domestic situation younger firms encounter. Since older firms are often well entrenched in the domestic market, exporting may be the only alternative available to younger firms to obtain the production expertise and efficiency necessary to become a successful domestic competitor.     

Polarisation and Reversion under Competition: Profitability of Indian Firms

We analyse profitability dynamics in a large emerging economy, India, over the two-and-a-half decades since economic liberalisation began in earnest. We find that the average rate at which Indian firms reverted to normal profitability increased significantly, particularly for firms earning supernormal profits. In contrast, firms earning below-normal profitability have been marked by little reversion to normal. Inducing underperforming firms to improve their profitability is of great policy importance. The pattern in profitability dynamics of Indian firms in the early years was consistent with a polarised long-run profitability distribution. The polarisation tendency was reversed in later years, but the projected long-run profitability distribution has a substantial underperforming tail.     

Analysis of Social Performance in the Spanish Financial Industry Through Public Data. A Proposal

Banking firms are becoming increasingly aware that their clients’ management of environmental and social risks may in term threaten their own business as lenders and investors. In addition, stakeholders are requiring banks to improve their social performance. As a result, some banks are developing corporate social responsibility (CSR) policies and management systems to reduce potential risks and improve their performance. In the Spanish financial system, half of the banking firms are savings banks, most of which have always used some Corporate Social Responsibility (CSR) criteria in their management. Private Banks have only recently started to integrate social aspects in their performance. However, no formal analysis has been carried out on the impact of CSR strategies. Various initiatives have been launched nationally and internationally to include the social dimension in management systems. The purpose of this research is to analyse the social performance of the main Spanish financial companies through public data such as social or sustainability reports and media sources. In order to do this, we need to determine which CSR criteria most greatly affect banking firms and to choose the most accurate quantitative and qualitative indicators to measure social performance.     

The role of country-of-origin,ethnocentrism and animosity in promoting consumer trust. The moderating role of familiarity

The objective of this study is to present empirical evidence on the extent to which socio-psychological variables (ethnocentrism and animosity) and the reputation of firms associated to a country-of-origin (COO) are related to an important relational exchange factor (trust). Furthermore, the study tests the moderating effects of familiarity. Data were collected from 202 automobile owners in a large Spanish region. Path and multi-group analyses were performed using a structural equation modelling approach. This paper investigates the effects of reputation of firms associated to a COO and animosity on trust, which have not been commonly used as a dependent variable of these concepts before. Moreover, this study explores the moderating role of familiarity. This study supports the view that reputation of firms associated to a COO can safeguard international transactions and create trust in foreign firms, and thus may decrease due to interrelated emotional consumer reactions such as animosity and ethnocentrism.     

Contrasting Strategic Response to Economic Recession in Start‐Up versus Established Software Firms*

Economic recessions represent a period of greatly reduced environmental munificence that threatens the survival of all firms. This is especially the case for smaller, start‐up firms, which have been shown to fail at a much higher rate compared with their larger, more established peers. This study surveyed 137 software executives regarding their strategic response to the most recent economic downturn (2001–2003). I draw upon Hofer's framework for turnaround strategies to develop hypotheses to explore how smaller, start‐up firms adjust their strategies in response to economic recession. The results suggest that start‐up organizations are much more inclined to pursue revenue‐generating strategies as a means to weathering recession rather than cost reductions, which tended to be the preferred strategy of larger firms.     

Behavioral credit scoring model for technology-based firms that considers uncertain financial ratios obtained from relationship banking

The Korea government offers technology credit guarantee service to many technology-based small and medium enterprises (SMEs) suffering from funding problems. Many advanced application credit scoring models have been developed based on technology to reduce the high default rates of this service. However, a credit scoring model which can reflect changes in firms after a loan has been granted has not yet been developed. In the study reported here, we propose a behavioral credit scoring model that reflects the debt-paying ability of recipient firms, which is observed as a time series of financial ratios of firms via the relationship banking activities. We utilize this time series, as well as missing patterns of financial information, as additional predictors of loan defaults. We compare our proposed behavioral credit scoring models, fitted at different points of elapsed time, to the application credit scoring model. Finally, we suggest the best behavioral credit scoring model for technology-based SMEs. Our study can contribute to the reduction of the risk involved in credit funding for technology-based SMEs.     

The strategic evolution of large US law firms

In recent years, large US law firms have been undergoing significant changes. Most have switched from a professional model (P2 form) to a corporate business model, employing competitive strategies and a profit orientation. As the market for corporate legal services became more competitive, many large US law firms began to diversify the services they offer and expand their operations into new geographic regions of the country and into international markets. They even engaged in acquisitions and learned to manage and leverage their critical resources, human capital and relational capital. As a result, most of these law firms have added more professional management. All in all, the services law firms offer and the rivals with which they must contend have changed substantially over the last 15 years.